‘We need to put this into context’ | Edward Scicluna

Facing resignation calls after the European Banking Authority found serious shortcomings in Malta’s anti-money laundering setup, Finance Minister Edward Scicluna insists that these flaws were ‘created in Malta’ and ‘exported’ to European institutions

In an article on Friday, you wrote that international crime “can be effectively fought by discouraging the conduit of the financial proceeds of crime through financial institutions.” Yet the EBA’s report concluded, inter alia, that this is precisely what did not happen with regard to Pilatus Bank. Doesn’t this also mean that Malta is not effectively fighting money-laundering?

First of all, the fight against money-laundering came into its own in the late 1980s/early 1990s [...] and the intention was that you can fight international crime by suffocating the conduit; [cutting off] the oxygen to these very successful criminal companies, if you could call them that. [...] So yes that was the purpose. If you manage to interrupt the financial transactions, you will manage to fight international crime. AML is important because it is there to deter real crime...

But the EBA concluded that we are in breach of the Money Laundering Directive for failing to do all that...

For me, you’re rushing a bit. [...] We need to put this into context. [...] In 2013, the FIAU was a very small unit [which] had six or seven people; it had a small budget of 330,000. That’s how serious we were with the FIAU until 2013. Today there are 42 people, and counting; and from a budget of 330, is being raised to just under 4 million. Its resources must have been increased for a reason.

the FIAU: the exchange of information with other countries; requests from the FBI, German police, and so on... were there. They had a plan, they were moving... until this Pilatus thing came and turned political...

It turned political for a reason...

... so my point of departure is that I am very familiar with these institutions, and even with the people: some of whom I trained myself at University. I know they are upright, hard-working people... at the MFSA, at the Central Bank, and the FIAU. So when you start attacking the FIAU... that’s why I’m defending the FIAU, for this reason. I don’t want to get involved with individual cases which are (being investigated by] magistrates; but to picture the FIAU in those dismal and unfortunate colours: as corrupt, or turning [a blind eye], or being influenced by myself or the prime minister... it’s outrageous.

You say it’s outrageous, but it is the EBA that painted the FIAU in those colours. Yet your response, to date, has been that European institutions are all being influenced by one MEP – David Casa. Isn’t that a bit unrealistic?

In my position – I have worked with EU institutions; I was an MEP, and am now on the Council... I am very familiar with these institutions. I have great respect for them; including the EBA. It was set up when I was an MEP, in 2009 [...] It doesn’t have the powers that the European Banking Union has; but it’s there, and I respect it. I know the chairman; I’ve dined with him... so it’s not as though I have an axe to grind with them...

You make it sound like they have an axe to grind with us...

What I mean is, I am experienced enough to know that there is such a thing as European politics; and sometimes, it favours small countries; sometimes in doesn’t. The fact that I could speak in the EP coming from such a small country... that is the advantage. I am around the ECOFIN table today, and I take up one seat; just like my German neighbour. That’s an advantage. However, we know that, with influence and pressures, they arrange things, and so on. There are such things as ‘pressures’...

So you’re suggesting that the whole EBA report was solely motivated by a political agenda against your government?

It’s not inside information; it’s all public. [...] Perhaps what we are not aware of is that money laundering, so far, remains a matter of competence for the member states. [...] Recently – especially after Panama, there have been more concerns on AML, so they are pushing – just like they are pushing for tax harmonisation – for any of the existing institutions to take responsibility for it. And there aren’t any institutions [which can take responsibility]... so they started with the [Single Supervisory Mechanism]. They summoned [chairperson Daniele] Nouy to appear before the ECON committee, and asked: ‘why are you not doing anything about anti-money laundering’? They tried to embarrass her, by saying that the only two cases we can talk about came from the USA. They mentioned Latvia, in which case the intelligence apparently came from the US; and they also threw in Malta, which had nothing to do with Latvia at all, in terms of the nature of AML. So far, we haven’t got a case of AML which compares to Latvia; what we have is about procedure...

But it could be argued that we haven’t had a case, precisely because the FIAU did not do its job properly...

But I have to continue the story. If you want to edit it, edit it. They said to Nouy, ‘look: you’re not doing your job’. So she tried; she got some consultants to carry out an assessment of AML. Then the Germans and others said: ‘Whoah. Buzz off. This is not your remit; your remit is banking supervision, which is important enough. Give AML to any other institution, but not the Single Supervisor’. [...] Then, they put pressure on the Commission by sending for Commissioner Jourova, and telling her: ‘you’re not doing enough with Malta’... and this and that... and all the stories that were published in the local papers were presented to her, and she didn’t have, how can I put it, a credible answer. So she promised that she would come to Malta; which indeed she did... and also that, because of that grilling, that she would write to the EBA to at least do something, by visiting Malta. That’s the story.

Not really; that’s just the background. Your story doesn’t address the findings of the EBA.

Now: the EBA... how well-resourced is it to look into AML? The answer is: almost zero. Politico reported that they have just two people...

So you’re contesting their findings?

No, I’m just saying that this is the reality: the EBA was not set up for AML. They are being pressed by the Commission to do something in the AML field, and they have – according to Politico – only two persons to cope with 28 member states. At the same time, I’m not saying that the FIAU were perfect...

But it seems they were very far from perfect. Regardless what pressures were applied, or what resources the EBA may have, when they looked into the Pilatus Bank case, they identified serious shortcomings...

These [shortcomings] were all created here in Malta, and exported to them. MEPs Anna Gomes, Sven Giegold and David Casa pushed them, and pushed them and pushed them. [...] So the EBA [...] was asked by the Commissioner to come to Malta, specifically to look at the FIAU; but only vis-a-vis Pilatus. They didn’t look at Nemea, which had bad governance, and people of certain political lineage as directors. They didn’t look at the Swedish Falcon Fund, where hundreds of Swedish pensioners lost their pensions. They only wanted to look at Pilatus. Fine. And what they found was not money laundering, like they found in Estonia... all they found is that, according to them, certain procedures were [flawed]. But these procedures were not found hidden in a drawer. The FIAU told them that, yes, with Pilatus they had a case that goes back to 2014. They were visited by the MFSA, and things were found not to be in order in terms of AML regulations. The bank was therefore given a warning. Pilatus then engaged two consultants – KPMG in the auditing field, and Camilleri Preziosi Advocates on the legal side – and asked them how to conform with the regulations. Which they did. The bank wrote back to say that things were now in order, and the MFSA carried out a second visit and they found that this was the case...

To picture the FIAU in those dismal and unfortunate colours: as corrupt, or turning [a blind eye], or being influenced by myself or the prime minister... it’s outrageous

There is another context, however: the Prime Minister’s chief of staff held an account at Pilatus, and the PM himself attended its chairman’s wedding. We also know that Pilatus held deposit accounts for Azerbaijani PEPs. Do you exclude that there was political interference in the supervisory efforts of the FIAU?

We don’t know anything as yet about the source of those accounts in that bank. I look forward to that report, and when it emerges we will see what percentage was from Azerbaijan, against other European countries. They are going through the accounts, one by one; and when they find money laundering, we will know. So far, they haven’t found any money laundering.

And yet Pilatus’ chairman now faces criminal charges which include money laundering...

No. When I said AML is important, it’s because the source of the funding is crime. But there are crimes and crimes. Drug peddling, or armament transactions, smuggling, etc., is one thing. In this case, however... we have to put this into context... the money came from the proceeds of a contract for social housing in Venezuela. The [Pilatus chairman] knew there was a law saying he couldn’t channel that money through his own home country, Iran; and he broke that law. It’s serious enough – he was ‘dealing with the enemy’, from the perspective of the USA. I’m not trying to minimise it. But for me, I say: ah, it’s not drugs; it’s not smuggling, it’s not tax evasion – at least, from what we know so far...

But it’s still a crime that went undetected, and the issue here is precisely the lack of proper supervision of this one bank... with all its political connections...

From me, you will not hear a single word in defence of any case that is currently under investigation. But I feel that our regulatory authorities are under enormous pressure... which is quite unfair... and because of the European politics that I have just described, I feel that the procedures carried out by the EBA did not conform with the rules of procedure. They refused to meet with the institution, for example. Since when can you refuse to do that? I do it all the time... with the Commission, when we have an issue: on the yachting taxation, on the refund system, on the taxation regime... we have so many meetings. Why did the EBA refuse to meet with the institution? That’s one. Then, there were all the recommendations they issued: half of those recommendations have already been implemented, before this judgment came out. And the other half are part of the plan. Now: you break the law when someone refuses the respect the law... who does it with a certain flourish, and who refuses to implement a plan. But not when someone does implement the plan...

But do you exclude that the FIAU may have been reluctant to take action because of the bank’s political connections? This is after all a rule of law issue here...

When I say that the board of the MFSA was not changed by the government [when it came into power]; or that the head of the FIAU had been appointed by the PN administration; I’m not trying to shirk responsibility. But if you try to say that I or the PM interfered in that decision, it’s not the case. Yesterday, for instance, the Nationalist media said that ‘I gave Pilatus its licence’. I didn’t. It was the board of the MFSA, and they were not even appointed by me. The same for the FIAU; when they visited [Pilatus], then revisited and closed the case... it was not under the new director, but the previous one who later reigned. So this attempt to inject a doubt that ‘government is interfering’... it is not the case.

But this doubt did not suddenly emerge with the EBA report. In May 2016, former FIAU director Manfred Galdes sent a dossier, copied to the MFSA, describing the bank as ‘a threat to the Maltese financial system’. Galdes had also written to Commissioner of Police Michael Cassar, who resigned shortly afterwards. So did Galdes. How can you not add this all up, and conclude that there is something seriously wrong here?

On the contrary: this is what I’m concerned about. People are being pressured, until they either resign, or end up in hospital. I repeat: they either resign, or end up in hospital. The pressure is enormous... and it’s not coming from the government. I know what I’m saying...

But there doesn’t have to direct pressure from the government. It could also be that the institutions – seeing that there was high-level political involvement – simply rolled out the red carpet for Pilatus, no questions asked.

[...] I don’t know what it is, but I think we have exceeded all lines of civility. I mean, we’re being made a laughing stock, not just in Europe but around the world... should we be happy about it? I don’t think so. Especially when I look at other countries regulatory authorities... when you have the German equivalent of the FIAU, admitting in public – that they have 40,000 cases for which they don’t have enough resources to investigate. They said it, because they wouldn’t expect the opposition to tear them to pieces, to take them to the European Parliament... to send for the Chancellor, to go to Berlin. They didn’t do any of this. They wouldn’t do it with a big country anyway. So... we’ve brought it on ourselves. We expect the FIAU to respond instantaneously, when it has taken a magisterial inquiry more than a year... and they are still investigating. I can understand that. It’s not an easy thing. Even the US authorities took five years to come out with the indictment of Al Sadr. [...] I know enough, from my own experience, to understand that these things take time. [...]

At the same, there has been a seriously damning report, but nobody has shouldered responsibility. Are we to understand that everything will just carry on as normal?

Should we go for lynching? For the court of public opinion? If so, [the FIAU] would be judged and condemned [without fair trial]. Is this what we want? Is this what you’re pushing for?

The question is, nothing seems to be happening at all.

Why are you rushing? The FIAU disagrees [with the EBA report]. They have a right to defend themselves [...] The rules of procedure give them 10 days to reply. Even, then they have two months to appeal. Let’s be fair: we have to let the institutions do their work.